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Dollar Diplomacy was the term used to describe America's efforts under President William Howard Taft to further its foreign policy aims in Latin America and the Far East through the use of economic power. The groundwork for this policy was laid by President Theodore Roosevelt in 1905 with his corollary to the Monroe Doctrine. This maintained that if any nation in the Western Hemisphere appeared politically or fiscally unstable as to be vulnerable to European control, the United States had the right and obligation to intervene.

Taft continued and expanded this policy, starting in Central America, where he justified it as a means of protecting the Panama Canal. In 1909 he attempted unsuccessfully to establish control over Honduras by buying up its debt to British bankers. In Nicaragua, American intervention included funding the country's debts to European bankers. In addition, the State Department persuaded four American banks to refinance Haiti's national debt, setting the stage for further intervention.

The policy of Dollar Diplomacy was also pursued in China when Taft's secretary of state became convinced in 1910 that America's free access to trade was threatened by European financing of the Hukuang Railroad. With some coaxing, the Taft Administration arranged for American bankers to be involved in the project and called upon J. P. Morgan to create an American syndicate for the purpose. Taft was also concerned about Russian and Japanese railroad activities in Manchuria and managed to persuade American bankers to join a consortium that would give China the money instead.

This approach to foreign policy was repudiated by President Woodrow Wilson within a few weeks of his inauguration in 1913. This did not prevent him from intervening in Carribbean matters but Dollar Diplomacy was no longer an explicit national policy

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